How Australia is impacted by the solar trade war

This week the European Commission unanimously decided to impose provisional tariffs on solar panels imported into Europe from China.

Quoting from the European Trade Commissioner’s memo:

“The tariffs will apply in two tiers; as of June 6 2013, a tariff of 11.8 per cent will be imposed on all Chinese solar panel imports. Two months later, as of August 6 2013, the average tariff will be 47.6 per cent. Overall, the duties will range from 37.2 per cent to 67.9 per cent at that stage. Those Chinese companies which have co-operated will face lower tariffs. Those which have not co-operated will face higher tariffs.”

The memo goes on to talk about the balance between protectionism and free trade, and the analysis they conducted which concluded many sales were happening below cost.

The Commissioner also notes that: “At first glance, cheap and plentiful seems great – but ultimately this will lead to a ‘race to the bottom’ and everyone loses across the solar panel industry and its related services.”

The US and EU decisions to apply tariffs to solar products caused a very distinct split within the industry with some arguing the lower costs (irrespective of their sustainability) created jobs and had helped create the enormous growth we have recently seen, which is true. However, those in favour of the tariffs argued that the different rules around solvency which apply around the world created an intolerable bias; citing the billions of dollars of losses and subsequent collapse of hundreds of solar companies, ironically both within and outside China.

Fundamentally the whole point of tariffs is to analyse the costs and benefits of imposition against the benefits to the domestic economy, which is complex to say the least especially when we have very limited manufacturing. With our (current) open door policy to solar imports and little local manufacturing (with the exception of Tindo Solar) enacting any change to current policies is highly problematic. I have worked for, and with, a number of local solar manufacturers and fundamentally our market is so small that making solar products here is almost impossible without support in one form or another.

But you know what? That is exactly why the Chinese solar industry has been so successful – because the government supported it, in the same way the Japanese government supported automotive manufacturing the 1960s and 70s and hundreds more cases back through our industrialised history. Building a globally competitive industry in a cutting edge technology requires support – and a transition plan when barriers have to reduce.

It sounds simple but one only has to look at Ford’s recent announcement to close its local manufacturing to understand some of the risks; despite tariff support (in the past) and hundreds of millions of dollars of direct support in more recent times, it pulled the pin. The risk of support is that in dealing with companies; plans, markets and competitive landscapes can change.

I would suggest that ideologically, positioning Australia on an equal footing with support in one form or another in one of the fastest growing industries in the world makes sense and presumably that’s a significant part of the motivation for the US and EU. They are, at least in part, trying to make a long-term play for the nations greater good and accept there will be some short term pain.

There is no reason that a well considered and structured plan for the development of a solar manufacturing industry couldn’t work here either, especially given that we have historically lead the way in research and development and then watched the value added benefits float off into the international ether, taking the bulk of the returns with it. Our solar industry is a case in point with the CEOs and head technologists from a huge number of solar companies being educated right here and then taking the business elsewhere. How is that sustainable from an economic perspective?

This is a highly complex economic issue (I don’t pretend to understand all the nuances) and it’s an issue that nations have grappled with for centuries. However, one thing for sure is that the implications of this decision for Australia in the short-term are profound. It could create a massive surge in low cost product landing in Australia which has pros and cons for everyone in the solar value chain. 

The downside is that we could end up being swamped with product from companies who have little if any probability of survival and be encouraging local suppliers who are interested purely in a short-term profit with little consideration for the long-term sustainability of the equipment or the industry; and there are a small minority who have demonstrated their willingness to play this game. The medium-term risks to consumers, well meaning solar companies and the industries reputation are prolific; and we have history to prove it could happen.

Behind this issue we also have an elephant in the room that could stop the discussion from ever getting up and that is that while ever a huge chunk of our electricity industry is government-owned, they have little incentive to give anything but passing, disingenuous attention to solar while ever it’s eating away at their revenues and profits; unless there’s a burning political imperative.

The one and only thing you can guarantee in this industry is that this solar coaster ride isn’t over yet.

Nigel Morris is the director of Solar Business Services.

This article was originally published by SolarBusinessServices. Republished with permission.